Using Law Suit Financing to Obtain Cash Advances during Litigation
Law suit financing is a strategy that allows plaintiffs to obtain a cash advance against pending monetary awards. Funding sources, such as private investors or cash advance providers, provide lump sum cash using award money as collateral while the case in still in litigation.
The majority of law suit financing advances fall into the category of ‘non-recourse’ loans. This means that cash advances are provided even though the verdict is undecided. Plaintiffs are not responsible for repaying advanced funds if the court does not rule in their favor.
Plaintiffs that obtain non-recourse funding are also protected if monetary awards are less than advanced funds. If this occurs, plaintiffs are only held financially responsible for repayment up to the amount of court ordered reward amounts.
The first step of obtaining cash advances for pending lawsuits is locating a funding source. Plaintiffs are required to provide court documents, financial records, and attorney contact information. Funding sources consult with the plaintiff’s lawyer to determine odds of the court ruling in favor.
While lawyers are unable to provide an ironclad guarantee of winning the case, they can predict the potential for favorable outcome. Funding sources typically only provide advanced funds when the chance of winning is 75-percent or higher.
When plaintiffs enter into law suit financing they provide funding sources with upfront financing fees and are required to sign a contract agreeing to repay cash advances upon settlement. Plaintiffs should take time to comparison shop funding sources to obtain the highest offer.
Upfront financing fees might be a one-time fee or a recurring fee that is charged until the cash advance is repaid. Recurring fees can be quite costly if litigation is prolonged.
Law suit financing is particularly beneficial for plaintiffs who are unable to earn income due to their injuries. Obtaining pre-settlement cash advances allows them to cover the costs of required medical care and legal fees, as well as basic costs of living.
Funding sources generally require plaintiffs’ attorney to sign a contract, but many lawyers refuse to do so. This is rather ironic because attorneys often recommend clients to obtain pre-settlement funding, particularly in bodily injury cases.
Law suit financing laws vary by state. Many states prohibit attorneys from signing contract agreements or liens with cash advance providers. Other states prohibit law firms from providing in-house lawsuit funding due to conflict of interest. Plaintiffs generally cannot obtain cash advances if their lawyer refuses to sign contracts or provide required information to funding sources.
Another use of law suit funding is to obtain cash for inheritance. When heirs are entitled to estate assets undergoing the probate process they can assign property rights to a funding source in exchange for lump sum cash.
Inheritance cash advances are not a loan and heirs do not repay advanced funds. Instead, the funding source files a creditor claim with the estate administrator. When probate settles, the Administrator transfers property used as collateral to the funding source.
It is strongly recommended to consult with an attorney prior to entering into cash advance contracts. At minimum, research state laws regarding using pending monetary awards as collateral to obtain cash advances.
Law suit financing can be obtained for a variety of cases in states where the practice is allowed. Common cases include: bodily injury, worker’s compensation, wrongful death, medical malpractice, product liability, and pharmaceutical litigation.
Originally published here.
Simon Volkov